Wallet recovery firms buzz as locked-out crypto investors panic in bitcoin boom

Ankika Biswas and Johann M Cherian

(Reuters) – The recent surge in Bitcoin prices has crypto wallet recovery companies ringing as retail investors locked out of their digital vaults make frantic searches to regain access to their accounts.

Cryptocurrencies reside on a decentralized digital ledger known as a blockchain, and investors can choose to access their assets through a locally stored software wallet or hardware wallet to avoid the risks that come with owning crypto through an exchange, as was the case with the former FTX.

Losing access to a crypto wallet is a well-known problem. Investors forgetting their complex passwords is the primary cause, but loss of access to two-factor authentication devices, unexpected shutdowns of cryptocurrency exchanges, and cyber attacks are also common.

Wallet passwords are usually alphanumeric, and the wallet provider also offers a series of random words known as “seed phrases” for additional security; both of these are known only to the user. If investors lose passwords and statements, access to their wallets is cut off.

With Bitcoin prices gaining momentum again since last October, hitting a record high of $73,803.25 in March, investors appear to be suffering from a classic case of FOMO, or fear of missing out.

Reuters spoke with nearly a dozen retail investors who lost access to their crypto wallets. Six of them contacted a recovery services firm and were able to regain access to their assets.

“What’s driving this trend is the fact that Bitcoin prices are at $60,000, not $30,000… it’s just pure economics,” said Steve Sosnick, chief strategist at Interactive Brokers.

“People who have lost their crypto for one reason or another, or those who don’t have access to their crypto, are very encouraged to get it back.”

The world’s largest cryptocurrency has surged 161% in the past two quarters on hopes the US Federal Reserve will cut interest rates and optimism about the launch of spot bitcoin exchange-traded funds (ETFs).

EXPLOSION IN RESCUE REQUESTS

A Switzerland-based firm that uses Nvidia’s graphics processing unit cards to run AI models to access struggling wallets saw claims increase tenfold in the first quarter compared to the previous year.

“We saw an increase (in requests to unlock wallets) with every dramatic change in price,” said a senior executive at the firm, who requested anonymity.

ReWallet, a Germany-based provider of wallet recovery services, saw a 334% increase in requests in the previous quarter and recorded a record number of requests in early March, when Bitcoin prices reached an all-time high.

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The firm estimates that about 20% of the total 19 million Bitcoins in circulation as of March 13 are likely inactive, currently worth about $237 billion.

US-based Wallet Recovery Services has seen a 30% increase in requests as of mid-April this year.

Rescue services provided by companies do not come cheap. ReWallet and WRS charge 20% on wallet contents; However, it is warned that these fees will only be paid after you receive the wallet.

INVESTORS’ WALLET RESCUE EFFORTS

“I was worried that I would no longer be able to access (my wallet) and therefore lose my bitcoins forever,” said an investor living in Germany who declined to give his name. “Of course the high Bitcoin price was an incentive to finally solve this problem.”

Another investor based in Switzerland, who did not want his name to be disclosed, said, “I had secured the wallet with passwords and I could not remember it. I tried again and again and created various lists containing possible alternatives, but unfortunately I was not successful.”

“It was an indescribably great feeling,” he said, describing ReWallet buying back his bitcoin holdings, which are now worth over $300,000. “I’m retiring in a year and a half and now I feel like I’m in a good position financially.”

Speaking about investors’ struggles, Ralf Wintergerst, managing director of German security technology firm Giesecke+Devrient, said: “Looking forward, there is a growing trend towards solutions that alleviate the key management problem inherent in self-storage.” said. “This may require the use of multi-signature wallets or other decentralized recovery mechanisms to distribute liability and increase security.”

(Reporting by Ankika Biswas and Johann M Cherian in Bengaluru; Editing by Pooja Desai)